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Homestead Sale Proceeds Do Not Lose Exempt Status During Pendency of Bankruptcy Case

By Karl Johnson posted 08-10-2018 09:10 AM

  
​BANKRUPTCY BULLETIN
Editors-in-Chief
Karl Johnson, Hellmuth & Johnson, PLLC
Jeffrey Klobucar, Bassford Remele, P.A.

 Contributing Editor: Mary Sieling, Manty & Associates, P.A.
Judge_Ridgway___In_re_Thomas.pdf

In In re Thomas, No. 17-43661-MER (Bankr. D. Minn. Jul. 31, 2018), the court, applying the “snapshot rule,” held that homestead sale proceeds that are exempt on the petition date maintain their exempt status irrespective of whether the exemption expires post-petition.

The debtor sold her homestead less than a year before filing her chapter 7 petition. In her schedules, the debtor exempted proceeds from the sale of her homestead in the amount of $51,860.00 under Minn. Stat. § 510.07, which provides an owner may sell or convey the homestead without subjecting it, or the proceeds of such sale for the period of one year after sale, to any judgment or debt.

The chapter 7 trustee objected to the exemption of homestead proceeds to the extent such proceeds remained in the debtor’s possession one year after the sale of the home. The trustee argued that the plain language of Minn. Stat. § 510.07 must be interpreted to mean the exemption of proceeds lapses or expires one year after the sale. If proceeds remain one year after sale, such proceeds would be bankruptcy estate property.

The court overruled the trustee’s objection and denied the motion—applying the “snapshot rule” to limit exemptions to the circumstances existing on the petition date. The court found that the proceeds exited the bankruptcy estate once exempted. In reaching its decision, the court also analyzed 11 U.S.C. § 522(c) which provides “property exempted under this section is not liable during or after the case for any debt of the debtor that arose…before the commencement of the case…”

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